Aleafia Health ALEAF stock is taking a slightly different approach to cannabis.  And, I wanted to highlight Aleafia Health as one of your cannabis investments in your portfolio.  Is ALEAF stock a good investment depends on your objectives.  For me, I get what they are doing and I could see the potential opportunity.  But, I will pass for now… and, for many reasons.

Aleafia Health is both a cannabis grower & processor and, also they have clinics.  Is this working?  It may be a little too early to tell for now.  There are some metrics that show this could work.  But, I do not see how a company scales up to mass levels with clinics.  It is one thing to open dispensaries and sell medical cannabis.  But, clinics require doctors that are going to specialize in medications and writing prescriptions.  So, cost structures are going to be different than other, similar companies.

Still, despite this, the big take-away for Aleafia Health is that they are getting absolutely crushed with their non-core business expenses.  Aleafia had revenues of $6.5M for the quarter but paid a whopping $56M in non-core expenses.  On the one hand, these are devastating costs to a company still attempting to achieve EBITDA profitability.  On the other hand, these costs are one-offs that will dissipate as the company moves forward.

Whether this is a buying opportunity for someone looking to buy on the dips, is up to that person.  For me, investing is an opportunity.  And, investing in a company that is behind means you are foregoing the opportunity to invest in another company that may be further ahead.  In economic terms, we call that an opportunity cost.  I will forego jumping in to ALEAF stock for myself.

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Aleafia Health Financial Data

Here is a breakdown of Aleafia Health financial data.  To start, one of the things I do not talk too much about is both Other/Non-Operating Income/Expenses & Unusual Income/Expenses.  These two are largely the same and show up in the Continuing Costs of any one company’s financial data.

This is where Aleafia Health’s woes really are stacked.  While gross margins are low – negative, actually – other costs are crushing the financials.  Worse, there were restatements with financials and this really did a number on any previous analysis.  If you look at the financial data at the very bottom of this analysis, you can see the big negative numbers.

Aleafia Health Gross Profits

Revenues are not increasing as would be needed.  There was a revenue peak of some $11M about four quarters ago.  Then, subsequent to a major drop of ~50%, revenues have not cleared this high-water mark.  In an era where we should be optimizing our opportunity, finding companies that are increasing their revenue quarterly should be goal #1.  When I see flat-like revenue growth such as this, I see potentially other companies that will continually outperform Aleafia Health.

Ultimately, this is a kind of race.  The race is an interesting race.  This race involves both success and momentum, both of which feed on each other.  If a company is achieving success via continuously increasing revenue, and in-kind margin growth, more and more individuals will show up to acquire the stock. As for Aleafia Health, where there is no revenue growth, investing here would be a missed opportunity.  In economics, we call this an “opportunity cost”, investing in one company versus not investing in another.

Aleafia Health Operating Profits

Whereas gross margins, as viewed in the previous section, are negative, operating costs are within striking distance of hitting solid performance numbers.  This is one of the variables I found positive.  With operating costs contained on a relative basis versus revenue, when Aleafia Health starts to ramp up revenues, should they be able to, Aleafia Health will be in a good position with operating profits.

This could be a good justification for increasing operating costs in the future inside SG&A.  SG&A is Sales, General, & Administrative.  If Aleafia could increase sales dollars and that translates into increased revenues, that investment would pay off.

Having operating costs at such a low number relative to revenue is positive and could lead to better performance.

Aleafia Health EBITDA & Net Profits

Revenues need to increase significantly before Aleafia Health can achieve EBITDA profitability.  Gross margins are negative.  And, there is no way forward to EBITDA profitability until revenues ramp up to achieve economies of scale.  But, operating costs are within striking distance which, that will help considerably.

Aleafia Health Cash On Hand

When you look at the totality of things, the hit from non-core costs (repeatedly), and then you look at cash on hand versus debt, this looks like a difficult position to be in for Aleafia Health.  Cash is dwindling.  And, without having achieved economies of scale from revenues, the future looks like a bleak proposition for Aleafia Health.

Aleafia Health Total Equity

Simply put, there is dwindling cash, assets, and equity.  Aleafia Health needs more working capital and, they need to improve in assets & equity while containing liabilities. Plus, if there are future non-core business costs that pop up from here, that will place more pressure on Aleafia Health’s future.  The entire package looks to be a tough situation to proceed forward with.

Aleafia Health ALEAF Stock Forecast

As I will be doing on the website for all of the stocks I cover, I continually put together Discounted Cash Flow statements generated from Discounted Cash Flow Calculators.  For your convenience, I have listed these all in a separate page: Most Undervalued Cannabis Stocks.

However, one of the precursors to me doing a DCF is achieving EBITDA profitability, or a roadmap to that.  Aleafia is no where near that; I cannot do ALEAF Stock Forecast at this time.

Is Aleafia Health ALEAF Stock A Good Investment?

I think there is likely to be a complete reorganization of cash, assets, & debt, as well as likely shares being issued to raise cash.  I do not see this as something I would want to step in front of at this time.

Aleafia Health Stock Financial Data

Aleafia Financial ALEAF Stock Financial Statements

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